How would proposed child tax deduction affect you?
Fate of Dewine’s plan in final budget uncertain
Gov. Mike Dewine anchored his proposed two-year budget around ways to help children and families in Ohio.
Among those ideas: A $2,500 tax deduction for people with kids.
“It is a budget that focuses on our people, on our families, and on our children, for they are Ohio's greatest asset,” Dewine said during his State of the State address. “It reflects our obligation to make sure every Ohioan has the tools to succeed, to get a good job, to live their dreams, whatever they may be.”
But what exactly does a tax deduction entail, and how would it affect your bottom line?
Here's what you need to know.
Tax deduction vs. tax credit
A tax deduction is an amount subtracted from your taxable income, which ultimately lowers your taxes.
This is very different from a tax credit, such as the Child Tax Credit enacted by Congress during the COVID-19 pandemic. Tax credits are taken out of the income taxes you owe. Depending on the amount and type of credit, this can reduce your taxes to zero or lead to a refund from the government.
Dewine said he opted for a deduction over a credit to help people out on their taxes, specifically.
“What we've done gives tax relief,” Dewine told USA TODAY Network Ohio reporters and editors last month. “The other is a subsidy to families. And again, there's nothing wrong with that. And I'm not necessarily at at all against that, but they're just different things. They're just different animals. They're just different goals that you have in mind.”
The proposal would cost the state about $130 million per year, according
to the Office of Budget and Management.
How much would I save?
Dewine's proposed deduction would save parents some money, but the impact is less pronounced than a credit would be. It also depends how many children they have; the deduction is $2,500 per kid.
For example, families with two children earning $100,000 would save at most $184. That same family would get $5,000 off their tax bill with a credit.
A single parent of one child who makes $40,000 would save about $69.
To approximate how much you would save from the deduction:
● Calculate your state income taxes using your current taxable income and tax rate. Reminder: Ohio has tax brackets that use different rates for different levels of income.
● Subtract the deduction from your current taxable income − $2,500 for one child, $5,000 for two, etc. Calculate taxes for that amount with the applicable tax rate.
● Subtract the second number from the first.
Note: This applies only to state income taxes, not federal.
Some critics of Dewine's proposal have said it doesn't help those who need it the most. Ohioans who make under $26,050 don't pay income taxes, meaning they wouldn't see any financial relief through the deduction.
“The wealthier you are, the more you get from it, but it's still very, very little,” said Guillermo Bervejillo, a policy fellow at Policy Matters Ohio, a progressive,
nonprofit research institute.
Will Dewine’s proposal pass?
It's too soon to say whether the deduction will end up in the final twoyear budget.
House lawmakers started reviewing the governor's proposal last month and will eventually pass their own version of the spending plan. State Sen. Matt Dolan, R-chagrin Falls, said he expects the Senate Finance Committee to get a crack at it beginning mid-april.
Dolan and Rep. Jay Edwards, R-nelsonville, who chairs the House Finance Committee, said they appreciate the spirit of Dewine's proposal and want to find ways to help parents. But it's unclear what the final version will look like, and Edwards wants to ensure any deduction affects all families in Ohio.
“This might be an incentive for trying to relieve obstacles for people who want to have children and are thinking about family planning,” Edwards said.
House Republicans also have bigger plans for the state's tax code. They want to eliminate the state's progressive tax system in exchange for a flat tax rate on those earning over $26,050.
Rea Hederman, the vice president of policy at the conservative Buckeye Institute, said that kind of broad tax proposal is more appealing than something that would only affect certain Ohioans.
“Any time you start to give people deductions based on certain characteristics … you're shrinking the tax base so other people have to pay a higher tax rate,” Hederman said.
Haley Bemiller is a reporter for the USA TODAY Network Ohio Bureau, which serves the Columbus Dispatch, Cincinnati Enquirer, Akron Beacon Journal and 18 other affiliated news organizations across Ohio.